Disk Utility is located in the Utilities folder which is inside the Applications folder on the root of your hard drive (or top level). One of the most commonly used functions of this program is to format a drive. You can also burn CDs from this program, create images, erase CD-RWs, restore from images and perform two very important maintenance tasks.
Notice in the photo that the drive that Disk Utility recognizes is a 232.9 GB drive. Really, the drive is 250 GB but about 5% of every drive is eaten up by the volume directory (or something like that). It is not usuable to you or the computer but is necessary for the hard drive. So it is common to see less that what you paid for here. If you click on the top most icon, you are selecting the entire physical hard drive as a whole. Reformat it and you lose all of your partitions (data included, obviously). Select one of the volumes below the physical drive, and you can modify just that volume (repair, erase, RAID,or restore). All partitions are volumes but not all volumes are partitions. (see disk images below).
Below is a picture of the "Tabs" that are present when you select a volume. If you were to select the physical hard drive, another tab would be available called "Partition". This is what you'd select to break your physical hard disk into multiple volumes.
Format a drive
To format a drive (or volume), simply select it in the column and hit the "Erase" button from the tabs up top. This will erase all data from the drive! You will not be able to erase or format your startup disk. That would be like giving yourself a lobotamy. Luckily, the OS prevents that possibility. Once you hit the "Erase" tab, the following should be visible in that window:
and from the Volume Format drop down menu:
There should really be no reason to "Install Mac OS 9 Drivers" unless you have the Classic environment installed. By this time, hopefully everyone has retired their OS 9 applications and moved over to OS X. Leaving this checked will not affect anything even if you're in OS X. The most common format to use is the Mac OS Extended (Journaled) option. "Journaled" means that it keeps a record of trasactions so that in case of a crash, the OS is often able to restore your last transaction and hopefully, not lose any data. Do NOT rely on this. However, it is good to use this format for all Macintosh applications.
**For USB Flash drives, I usually have two drives; one that I share with friends and collegues and one for my own personal use. The one that I use for file sharing, I format to FAT32 so that my PC friends can read the drive. Most PCs cannot read an HFS+ (Mac OS Extended) formatted drive without 3rd party utilities. So this makes it much more compatible.
Maintenance
Under the tab "First Aid" is where you can perform some simple maintenance tasks on your hard drive. It is recommended that you perform these tasks about once per month. Often, the system will work fine with minor errors. But those errors will only grow over time and lead to system instablilty. Eventually, your computer could fail to boot and all of your data is at risk. To avoid this, it is imperitive to be pro-active and perform these tasks on a regular basis. If you catch it early, repairing the errors is quick and easy. Letting it fester could lead to catastrophe. Please refer to my Mac Maintenance article for more info.
Optical Media
This is also the application to use when you want to erase a re-writable CD or DVD. Simply put the disk in the drive, wait for it to show up in the list on the left and then click "Erase data on disc" in the window. There are actually on-screen instructions for this.
Disk Images and Restore
A "disk image" is a type of file that when opened, becomes a mountable volume with its own file system. Often, this is how software developers bundle their software to be installed. The file looks like this:
and then if you double click it, a new icon appears on the desktop that looks like this:
The "DiskImage.dmg" is a file that can be deleted. If you open it (by double clicking it) and mount the filesystem as seen in the second picture, then you can view it's contents. But this is usually a read-only volume (but not necessarily). More importantly, you do not delete the volume from the desktop but EJECT the volume as if it were a CD. If an application is delivered to you by means of a disc image, you should move the application to the Applications folder and run it from there. You can then eject the volume and even delete the disk image if you want.
This is how you might want to copy a CD. You can create a disk image of a CD by going to the File Menu and selecting "New Disk Image from ...". Once the disk image is created, you can then "Burn" that disk image to a CD. You can also "restore" a disk image to a volume. This is how you can create a volume that is the Mac OS X installation DVD. You'll notice that the OS installs much faster from a Firewire drive than a DVD.
There are more features and tasks that Disk Utility can perform but these features are less used and require a higher level of expertise so I will not go into it right now.